RPM(RPM) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated sales increased by 7.4% to a record level, with a balance between organic and M&A growth [11] - Adjusted EBIT increased by 2.9% to a record, driven by volume growth and MAP 2025 initiatives, despite headwinds from higher raw material costs [11] - First quarter adjusted EPS reached a record $1.88, influenced by adjusted EBIT improvement, partially offset by increased interest expense from acquisition financing [11] Business Line Data and Key Metrics Changes - Construction Products Group sales increased to a record, driven by systems and turnkey roofing solutions, although offset by softness in Europe and disaster restoration business [12][13] - Performance Coatings Group achieved record sales with broad-based strength in turnkey flooring and protective coatings, with adjusted EBIT also reaching a record [14] - Consumer Group sales increased to a record due to successful integration of acquisitions, although DIY demand remained soft [14] Market Data and Key Metrics Changes - Growth was led by Europe, benefiting from acquisitions and favorable effects, while North America grew by 5.9% [12] - Emerging markets showed mixed performance, with strength in Africa and the Middle East driven by infrastructure projects [12] Company Strategy and Development Direction - The company is focused on a pivot to growth, investing in sales associates and support staff, while competitors are cutting costs [9][10] - Strategic M&A activities are being rebuilt, with a focus on core and adjacent markets [16] - The company is expanding its presence in new retail channels, including grocery and dollar stores, to capture additional market share [80] Management's Comments on Operating Environment and Future Outlook - Management expects another quarter of record sales and adjusted EBIT, driven by systems and turnkey solutions and a focus on repair and maintenance [19][20] - The company anticipates continued challenges from economic uncertainty and inflation, but remains optimistic about growth investments [21][22] - Management highlighted the importance of maintaining benefit programs and investing in growth despite a challenging environment [10][16] Other Important Information - The company returned $82 million to shareholders through dividends and share repurchases during the first quarter [16] - Inventory increases were driven by strategic purchases to mitigate future tariffs and ensure high service levels during plant consolidations [17] Q&A Session Summary Question: Outlook for the year and impact of investments - Management indicated that investments for growth are delivering higher organic growth levels than the market, with deliberate spending on new hires and advertising [25][26] Question: Industry demand for the Consumer Group - Management believes the Consumer Group is outperforming the broader industry, with new product introductions helping to gain market share [29][30] Question: Details on increased marketing spend - The increase in marketing spend is primarily in advertising, focusing on social media and e-commerce, particularly in the cleaners category [34][35] Question: Impact of manufacturing inefficiencies - Management noted about $10 million of unfavorable conversion costs due to plant consolidations, which are expected to continue into the second quarter [37] Question: Backlog and growth in Construction Products and Performance Coatings - Management highlighted strong backlogs in reroofing and institutional projects, with aggressive expansion in sales forces contributing to growth [44][48] Question: Changes in guidance and challenges - Management cited challenging dynamics in gross profit margins and unexpected healthcare cost increases as reasons for adjusting guidance to the lower end of the range [55][56] Question: Pricing strategies in response to tariffs - Management acknowledged the difficulty in raising prices earlier due to the unpredictable nature of tariffs, but expects to implement higher prices in the upcoming quarters [59][60] Question: Working capital management and inventory purchases - Management indicated strategic inventory purchases were made to mitigate tariff impacts and ensure service levels during transitions [66] Question: Future growth expectations - Management does not view the current year as normal due to ongoing uncertainties, but anticipates that in a more stable environment, revenue growth should lead to higher earnings growth [108]